Russia: Despite Budget Deal, Crisis Continues

Moscow, 17 December 1996 (RFE/RL) -- Russia's communist-dominated Duma approved the government's 1997 budget in its first reading on Sunday, after extracting promises from Prime Minister Viktor Chernomyrdin that back wages and pensions would be paid. But Russia's economic crisis looks set to continue as thousands of teachers and miners across the country remain on strike over unpaid wages.

The Duma voted 263 to 111 in support of the budget draft after months of opposition to the government's proposed spending plans and what deputies called unrealistic revenue forecasts. The draft that passed calls for expenditures of roughly $96,500 billion, revenue of roughly $80,400 billion, and a budget deficit of 3.5 percent of Gross Domestic Product (GDP).

Before the draft is ratified, the Duma must approve it in second and third readings scheduled for December 25. It will then be passed on to the upper house of parliament, the Federation Council, for final approval.

President Boris Yeltsin hailed passage of the budget in a statement which said, in his words, "the whole country has won" thanks to cooperation between the government and the Duma. He said it would be possible to rework the budget in the next few weeks to increase spending on social and military reform.

Both Defense Minister Igor Rodionov and the chair of the Duma's defense committee, Lev Rokhlin, have called for increased military spending to be added to the 1997 budget before it is ratified.

The Duma initially approved the budget apparently after being won over by the government's reworked draft which calls for increased spending of about $6,000 billion.

Communist Party leader Gennady Zyuganov qualified his support for the budget by saying the Duma could still reject it in its second and third readings if the government fails to meet the opposition's demands. Zyuganov is demanding the resignation of presidential chief of staff Anatoly Chubais, whom he accuses of running a parallel government. Zyuganov will also be watching carefully whether the government fulfills its pledge to pay all back wages and pensions before the end of the year.

Presidential Spokesman Sergei Yastrzhembsky today dismissed demands to sack Chubais, saying the budget discussions should not be linked to political posts.

Chernomyrdin has also rejected the demands for Chubais' resignation. And he denied reports that he and Zyuganov had struck a deal over the budget by offering leading communist party figures cabinet posts in exchange for communist support for the budget.

Chernomyrdin also said the increased spending outlined in the budget will help resolve problems with the payment of back pensions, and will boost financial support to the regions. He said that the government has already paid most of its debts to workers, and pledged to pay remaining unpaid wages to teachers and to the army.

His promise has done little to quell discontent among thousands of workers who still have not been paid. According to the Union of National Education and Science Workers, about 70,000 workers in more than a thousand educational institutions across the country are now on strike over unpaid wages.

Some 70,000 miners were also reported to be continuing to strike to demand back wages, despite a decision by union leaders last week to halt the strike after the government promised to pay all unpaid salaries by the end of the year.

It is questionable whether next year's budget, which calls for increased spending, will resolve the ongoing crisis over unpaid wages. Analysts say the draft now under discussion differs very little from the government's original budget proposal submitted in August. After the Duma rejected that draft budget in October, a conciliation commission was formed to work out changes. But very few of those changes were incorporated into the current draft.

Roland Nash, an economist with the investment bank Renaissance Capital, told RFE/RL that the budget which the Duma passed on Sunday is, in his words, "very similar" to the government's original proposal both in terms of spending and revenue. The government's proposal called for revenue of 15.9 percent of GDP, which is the same as in the current draft.

Some observers have speculated that the communist-dominated Duma approved the budget after winning a public relations victory by getting the government to promise to pay back wages and increase spending. But in effect, little has changed. Duma deputies still have very limited powers to control government expenditure. This year, the government actually spent less than what was called for under the budget because of poor tax collection. Thousands of workers went without pay as a result.

Yeltsin, in a decree announced yesterday, authorized the Interior Ministry to help in the crackdown on tax deadbeats. Previously, special tax police have been in charge of dealing those who did not pay taxes.

Nash says it will be difficult for the government to raise the amount of revenue called for under the budget, even if the Interior Ministry steps in. As Nash puts it: "It's a short term solution. What's needed is major tax reform." Without it, he says, Russia is likely to continue to experience strikes and social unrest as workers go without being paid.